Dollar slips vs. yen, franc on simmering North Korea tensions

FILE PHOTO: A U.S. Dollar note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration/File Photo

TOKYO (Reuters) - The dollar slipped against the Japanese yen and Swiss franc on Tuesday as global tensions simmered amid signs that North Korea could conduct more missile tests.

The U.S. currency was down 0.4 percent at 109.335 yen, nearing a low of 109.220 hit the previous day in a knee-jerk reaction to North Korea’s hydrogen bomb test on Sunday.

The Swiss franc advanced 0.2 percent at $0.9548 franc per dollar, adding to gains from Monday, when it rose 0.7 percent.

Geopolitical tensions flared anew after North Korea conducted a powerful nuclear test on Sunday. The region has remained nervous, bracing for more ballistic missile tests amid perceived signs of activity by Pyongyang ahead of Sept. 9, when the country marks its founding day.

North Korea has been observed moving what appeared to be an intercontinental ballistic missile (ICBM) towards its west coast, South Korea’s Asia Business Daily reported on Tuesday, citing an unidentified intelligence source.

“The situation in North Korea poses risks for the market with no clear end in sight, limiting any bargain hunting for the dollar,” said Ayako Sera, senior market economist at Sumitomo Mitsui Trust.

“It is a contingency, like an earthquake, and participants are approaching it as such. For example you won’t buy the yen just because you expect an earthquake, but you can always be poised to react to such an emergency.”

The euro gained 0.15 percent to $1.1907, edging back towards Monday’s high of $1.1922.

The common currency had risen to a 2-1/2-year high of $1.2070 a week ago and the focus was on whether it could remain on an uptrend after Thursday’s European Central Bank policy meeting.

The euro has drawn a boost on expectations that the ECB would begin exiting its massive quantitative easing policy sooner rather than later.

Many economists had initially expected the central bank to announce a reduction in September to its monthly asset purchases, but a majority now sees the ECB making the announcement in October instead.

“It would seem a risky move for the ECB to declare an end to its asset purchase programme at this juncture when the details and potential outcome of the Italian elections are still unclear,” said Daisuke Karakama, chief market economist at Mizuho Bank.

Italy is scheduled to hold elections early in 2018.

Dollar bulls meanwhile may look to U.S. political developments for potential support.

The Federal Reserve’s Sept. 19-20 policy meeting and discussions over the U.S. debt ceiling could ultimately support the dollar later this month, said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

The U.S. Treasury Department has a Sept. 29 deadline to raise the debt limit, a legal cap on how much the U.S. government is allowed to borrow.

Only the U.S. Congress can raise the debt limit and expectations have risen that the ceiling would not affect Federal efforts to clean up after Hurricane Harvey.

The dollar index against a basket of six major currencies slipped 0.15 percent to 92.503.

Against a broadly sagging greenback the Australian dollar was up 0.25 percent at $0.7962, edging back towards a one-month high of $0.7997 set on Friday.